City moves toward a hybrid retirement plan

Published: Tuesday, February 5, 2013 at 9:51 p.m.

Last Modified: Tuesday, February 5, 2013 at 9:51 p.m.

In hopes of curbing rising pension costs, the Ocala City Council on Tuesday formed a consensus to change the city’s General Employees’ Retirement Plan to a hybrid plan, but will wait until the actuarial consultant presents the numbers of what each of the three proposed hybrid plans will cost the city. Those numbers should be available in 30-60 days.

The consensus, too, was that the new hires and current employees would be treated the same.

The old plan will be frozen and employees will be entitled to whatever benefits they had accumulated to that point under the current plan.

Those employees who have five or less years until retirement would be allowed to stay in the current defined benefit plan. But those employees could possibly be given the option to change to the new plan going forward.

The council’s chambers and hallways at City Hall were crowded with employees waiting to hear the fate of their retirement benefits.

“I think current employees should be left in the current or the 1999 Plan as Mr. McLeod suggested or given the option if they wanted to go into the hybrid plan,” Lisa Mauldin, who sits on the General Employees Pension Board said after the meeting about Councilman John McLeod.

Mauldin said that the figures on which the council is making its decision are from Oct. 1, 2011. She said the plan earned more than 12 percent in 2012, for a gain of $9.8 million. She said the council should include those numbers when making its decision.

Based on the 2011 numbers, the General Employees plan had an unfunded liability of $92.6 million and the average pension cost per employee is $18,789. The plan has a funding ration of 46.7 percent or 46-47 cents in actuarial assets for every $1 of liability.

Many of the employees asked that the benefit not be changed for current employees and that any changes to the plan be made for new hires.

Chris Drivas, a supervisor for the electric utility, said he relies on the experience of his crews when he gets in the bucket to shield him from life-threatening mistakes. He said if the benefits are not competitive, people will leave the city.

“In this line of work, experience is everything,” Drivas said. “We keep pushing everybody out the door. That’s not good.”

He said it takes a long time to train a lineman. He said there are employees who have waited eight years to become an apprentice.

Drivas told the council that the utility earns a lot of money for the city.

But there was no clear consensus among the council members on which hybrid plan to choose. That will be based on the numbers the actuary brings to them.

Two of the proposed hybrid plans being considered would be a combination of a defined benefit plan, which guarantees a certain benefit, but lower than the current benefit, plus a defined contribution plan, in which the employees would contribute to the plan.

Under the defined contribution plan, employees could make their own investment choices and, as a result, the employee would accept some of the risk for their benefit performance.

The third hybrid plan that is proposed would be a variable annuity defined benefit plan, which means that when the cost of the plan goes up, the benefit goes down, so employees would share in the cost.

“There are some people that want a hybrid and defined contribution in their plan and they can take advantage of the market gains,” McLeod said about giving employees a choice.

The actuary, Jim Rizzo of Gabriel, Roeder, Smith & Company, will be doing the new calculations to provide council with the 30-year cost projection for the three hybrid plans, with the defined benefit portion mirroring the Florida Retirement System’s plan and the defined contribution portion based on 8 percent of pay. He said he could include the 2012 return on investment while using the old census data.

Rizzo told the council that because they have been using a “5-year smoothing method,” the 2012 gains likely would not make a large difference in the numbers.

“One year return will be a phantom,” Rizzo said, cautioning the council not to make a decision based on one year’s return on investment.